By Andria Cheng

Staples Inc. on Thursday joined its smaller rival, newly combined Office Depot Inc. and OfficeMax, in reporting disappointing sales and bottom line earnings, adding to worries about the the future of the office supplies industry.

Despite hope that the company
/quotes/zigman/78299/delayed/quotes/nls/splsSPLS may be able to pick up some market share from the merger disruption of its rivals, Staples’ results showed that the headwinds thrown the industry are simply too big to offset any edge it may have over its direct rival. Except for a 10% increase in online sales, sales and operating profit declined and missed expectations across its North American retail unit, its business customer and its international segments.

Staples tumbled 15% to $11.39. Office Depot fell 4%.

Staples

Staples features new products in its logo

While the company, like most other retailers, cited a shorter holiday season that led to an intensively promotional holiday and mentioned weather as factors that also hurt sales, Chief Executive Ron Sargent admitted there were bigger problems that faced the company: The changing work environment that has reduced the need for traditional office supplies amid online competition.

“We are holding ourselves accountable,” he said on a conference call. “It’s clear that we underestimated the headwinds that we’re facing in our retail stores as well as demand for core office supplies. Our customers are using less office supplies, they’re shopping less often in our stores and more online and their focus on value has made the marketplace even more competitive. The performance of our retail stores has consistently fallen short of our expectations over the past few years.”

Staples has reported seven-straight quarters of same-store sales declines, while Office Depot has reported 13, according to Retail Metrics.

“Is there a place for office-supplies retailers?” Ken Perkins at the research firm said. “I think there’s room for them but they have some heavy lifting to do in order to remake themselves.”

To combat the headwinds, Sargent is reinventing the company as a “destination for every product businesses need.” This year the company launched a new marketing campaign, Make More Happen, to tout its newly stocked items beyond office supplies, from stethoscopes for doctors’ offices to dog biscuits for small convenience stores. The company also is accelerating both its store closings and cost-savings program, including a plan to close up to 225 stores the next two years after it closed 40 last year. Staples also will downsize its stores to a smaller 12,000 square foot format. However, Sargent is keen on the company remaining a retail business, and said it will try to increase its online sales, about half of its total.

“We’re not getting out of the retail business,” he said. “Our stores are an important differentiator versus the competition.”

Staples has 1,500 stores in the U.S. and more than 2,200 worldwide, it said on its website. Office Depot
/quotes/zigman/236952/delayed/quotes/nls/odpODP, combined with OfficeMax, had 1,912 stores at the end of the 2013. Store closings also are a key strategy behind the newly merged company’s cost-savings target.

“We had wrongly maintained a positive bias on the company,” said Janney analyst David Strasser, who cut the stock to neutral from buy. “The increased desire to close and shrink stores is the correct strategy, but even the aggressive store closures announced today are not going to be enough. This is too little too late. While (Staples) had attempted to rejuvenate the store through technology offerings, its limited technology/CE assortment and skill set as well as lacking the full line of top brands, like Apple, have made it tough to succeed in this category.”

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About Behind the Storefront

Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.